Lenore Taylor, political editor

theguardian.com, Thursday 1 May 2014

Pensioners, students, low-income families, disabled people, the sick and public servants face 'sudden policy shocks'

Joe Hockey says the audit report is 'not the budget'. Photograph: Alan Porritt/AAP

The Coalition is bracing for a significant political backlash as it refuses to rule out most of the highly contentious recommendations in the Commission of Audit report despite the fears being raised among pensioners, students, low-income families, disabled people, the sick and public servants.

And the head of the commission, Business Council of Australia president Tony Shepherd, has questioned the rationale for the government’s plan to impose an immediate tax hike for higher income earners to “share” the budget pain – saying there was not really a short-term “budget emergency” but rather a serious longer term structural problem with the nation’s finances.

Shepherd said the audit commission had deliberately avoided big immediate spending cuts that could hurt consumer and business confidence and “sudden policy shocks” that would make it harder to convince the community of the need for fundamental change.

The government has all but confirmed it is considering a temporary tax increase for higher earners, despite deep concerns in its own ranks and the fact that a tax increase would constitute a clear broken promise.

“There is a need for an immediate special effort … to strengthen our starting position as we move to reduce the deficit ... so the decisions we are considering is how to make sure the immediate special effort is spread fairly across the whole community,” the finance minister, Mathias Cormann, said.

Shepherd said the government was “saying they need to act now to get out of deficit quickly and to get the money to invest in infrastructure to speed the economic recovery.

“It’s a political judgment really, and I agree with the need for infrastructure spending, but economically you have to be careful you don’t hit confidence.”

A longer term way to spread the budget “pain” to the wealthy would be to wind back some of the $30bn in superannuation concession paid each year. The commission said that as a tax measure this was beyond its brief to look at government spending, but added “many superannuation tax concessions disproportionately benefit higher income earners, when compared to taxation at marginal tax rates under the progressive income tax system” and suggested they be examined by the government’s tax review.

The treasurer, Joe Hockey, insisted the report was “not the budget” and not all of the commission’s recommended cuts would be adopted, and many would be referred off to other government reviews of taxation and federal-state relations. But he refused to rule out any recommendations other than the suggestion that the government reconsider its long term goal for increasing defence spending and the recommendation to include the full value of the family home in the means test for the aged pension. In an interview on the ABC’s 7.30, Cormann would not rule out the commission’s recommendation that high income earners should be forced to take out private health insurance for basic medical services – a step that would effectively end Australia’s system of universal health care.

Meanwhile, the public service union warned the commission was under-estimating its calculation that its recommendations for abolishing and merging government agencies would cost 15,000 jobs, saying the real figure would be closer to 25,000.

Disability groups reacted angrily to the call for a slower roll out of the national disability insurance scheme and the Australian Council of Social Service said the report’s recommendations threatened Australia’s social safety net and failed the “fairness test”.

“It is fair and reasonable to expect that governments to ensure that when any of us get sick we can get treatment; that when we lose our job, there’s a safety net to see us through the tough times; and that all children get a chance to a decent education,” ACOSS chief Cassandra Goldie said.

“These reasonable expectations are under challenge by proposals to create a two-tiered system in health and education that will result in decent services for those who can afford to pay and a second rate system for those who can’t. For this reason we reject the proposal of a GP co-payment that will severely impact people on the lowest incomes and those with chronic illness. It would lead to reduced visits to doctors and greater pressure on the hospital system.”

The Labor party and the Greens seized on the report to accuse the government of hitting the poor and cutting services for working families.

The Greens say the commission’s terms of reference were “rigged” to get the recommendations the government wanted, that it was a report “by business, for business”. The Greens have called Shepherd before a Senate inquiry Friday morning to “explain himself”.

And Clive Palmer said his Palmer United Party would not support any of the suggested changes to the aged pension.

Hockey said it was “kind of ridiculous” for the government to be required to keep every election promise when it had inherited a budget which Labor had falsely promised would return to surplus.

“All this talk about broken promises, of course we will endeavour to keep our promises … but please, this idea that everything we said is going to be held against us ... given what has moved on us is kind of ridiculous,” he said.

And he said the report proved that there was an urgent task to repair the budget and avoid deficits and increasing national debt into the next decade.

He said the Coalition had "inherited a mess", with $123bn in projected deficits over four years.

"The challenge now is to get on with the job of fixing the mess, and we will," he said.

"...The fact is that unless structural reform is undertaken Australians will have a lesser quality of life in the future than they have today,’’ he said.

“I have no doubt that there'll be many issues that are highly contentious and somewhat difficult for various stakeholders and some in the community to accept. But there is an overwhelming challenge here and that is to ensure that the budget is structurally fit for the future.”

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